In Farrell Bldg. Co., Inc. v. Shinnecock Electric, Inc. a general contractor sued its former subcontractor for breach of contract. The subcontractor, an electrician, apparently intentionally abandoned the subject project (so says the Second Department) and unilaterally terminated the contract. The court found that the subcontractor was liable for the damages that the general contractor incurred including the additional expenses of hiring completion contractors to finish the work that the original subcontractor failed to complete.
This case should serve as an important reminder to subcontractors out there that damages can flow from your contract even if you have properly completed all of the work that you have been paid for up to the time that you improperly terminated the contract. These damages, as was the case here, can include the completion costs that the general contractor incurs. For example, if you have a subcontract for the electrical work for $500,000.00 and you terminate the contract (improperly) with $200,000 of work left and it costs the general contractor $300,000 to complete that work, you could be liable for the additional $100,000 in costs that the general contractor incurred. A breach can occur for a variety of reasons from lack of capital to purchase materials to lack of manpower to a disagreement over the scope of work. But regardless of the reason, if the termination is improper you could be exposing your business to tremendous damages. Sometimes it is better to complete the contract at a small loss or under unpleasant conditions in order to avoid the consequences that may flow from your breach.
If you are planning on terminating a contract before the project is complete it is strongly advisable to speak to your attorney before hand to see make sure you fully understand the ramifications of your actions. It is also a good idea to speak to your attorney before you enter into a contract to see try and draft the contract in such a way as to avoid any problems that may come up down the line in the event a termination is necessary.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or firstname.lastname@example.org